Crypto Winter or Buying Opportunity? Dan Morehead’s 4-Year Outlook

0:00I think somewhere around here is probably the bottom. I'm happy to admit it might be another six or eight months of grinding here, you know, because that's what it's done in the past. But my main advice to investors is, you know, definitely don't invest more than you're willing to lose in the amount you can hold for at least four or five years. And anyone that's held Bitcoin for four years has always made money. I think the minimum is doubling your money if you've held it for four years. people will realize you don't need the state to sponsor money and you could use money like bitcoin or other cryptocurrencies and i think these geopolitical flashpoints probably highlighted even more that the world's kind of fracturing into groups east west you know u.s aligned adversarial the u.s and i think there will be an increased demand for money that's not controlled by the U.S.

0:55Treasury Secretary. And Bitcoin's great at that. I will admit the first couple of bear markets, I was sweating it. You know, crypto was down 85 % and everyone's talking about it was over and it failed. And, you know, I just been telling everybody it was the greatest trade ever and got a bunch of, you know, friends and colleagues into it and sweating it. I don't lose any sleep now. So I think it really has reached escape velocity. Bitcoin is going to be really important. And yes, it goes through these wild cycles, fear and greed, drive it up, down. But it really does feel inevitable.

1:38Welcome to the Master Investor Podcast with me, Wilfred Frost, where we celebrate and learn from the success of the greatest investors, business leaders and politicians in the world, giving you, our listeners, the edge. The Master Investor Podcast is sponsored by LSEG, Interactive Brokers, the World Gold Council and BNY Investments. Please do remember the views expressed in this podcast are for general information purposes only. Nothing in the podcast constitutes a financial promotion, investment advice or a personal recommendation. More on that in the show notes. My guest today is one of the foremost crypto experts around, Dan Moorhead.

2:19He's the founder and CEO of Pantera Capital, which he started in 2003 and pivoted purely to being the first crypto-only hedge fund in 2013. And that followed a very successful career, predominantly as a global macro trader at Goldman Sachs and Tiger Management. Dan joined us, of course, for the First time on the podcast back in October, five or so months ago. Dan, welcome back. Great to have you back on the podcast. It's wonderful to be back. We did a big deep dive in your first appearance on the broad case for crypto and how you saw it before so many others. The unbelievably low price you bought your first Bitcoin at, which was what remind me?

3:0165. But 65, not 65 ,000 or so where we are today. And I would refer people back to that episode for that deep dive. But one little snapshot of deep dive, if I may, for this episode to kick things off. You described then Bitcoin as the most asymmetric trade in history. Do you still think that? And why do you think that? I do. And throughout my career, I've been looking for these disruptions that have way more upside than downside. And I still think Bitcoin and the broader crypto space is the most asymmetric trade I've ever seen. And I used to back that up by when talking to people about crypto in the early days, I used to say you literally could lose all your money.

3:48Like don't invest more than you're willing to lose. But you could make five times your money, 10 times your money. As you mentioned, earliest investors have made a thousand times their money. That is crazy asymmetric. It's still there. And the reason I'm still so bullish is we're still in the earliest phases of this. The majority of institutional investors' exposure to blockchain venture and cryptocurrencies themselves is 0.0. Literally, the majority of investors have no exposure yet. And so we're very early in a multi-decade disruption, bull market, whatever you want to call it, that has to be very asymmetric because the downside is only the appreciation so far, which is very small relative to financial assets.

4:39So lots for us to unpack as we go through. Now, I mentioned we had you on in October. The last time we recorded was 12th of October. And it was great timing because a moment of volatility, the recent crypto peak turned out to be the 6th of October, which at the time felt like a sudden pullback, but we didn't know if it was going to be temporary or not. So since 6th of October, Bitcoin's down 50 % there or thereabouts. Why? Yeah, so anything that's going to change the world creates a lot of hype. There's a lot of hype on the upside. And then often there's a lot of pessimism when things go down.

5:21And so we've been doing this for 13 years, and we've been involved in four of these four-year cycles that crypto goes through. And they're actually very regular, and they're actually fairly predictable. And when we had met in October, we had just hit the peak that we had forecast two or three years before. When Bitcoin was at 30 ,000 or something, we ran all of the models for the previous three four-year cycles that we had been trading in. And it estimated that Bitcoin would peak on August 11th, 2025 at$117 ,542. And it did that day. That is very strange how precise it is. One of our investors said, hey, congrats.

6:08That was an amazing call. But doesn't that mean it's going to go down tomorrow?

6:14And the hope is this time will be different. that the new administration in the US or all these things that happened would be good and would change the cycle. But actually, in hindsight, the cycle did really assert itself and the markets come off. It's down 50%, as you mentioned. The previous cycles went down 75 % to 85%. So this is less than in the past. But there is a pretty good chance that the market will be down for about a year. That's what it has typically done is come down for about a year, very tight dispersion between each of the three cycles, and then continue its rally. That is what it's done in the past.

7:01And it does feel like it is playing out as it's done in the past. Obviously, when we spoke in October, though, you didn't take a bearish stance then, and we're down since then. I guess that the more important short-term question is, do you think this cycle will also be a down 75 to 80 percenter? No, it's a great question. And yeah, in the moment, I hadn't predicted that the markets would come off. There did seem like there were some unusually positive things like the change in administration in the US and a few other things. But in the end, the markets do kind of have their period to them that they go up a bunch.

7:38What I would say is in previous peaks, the market got way past its long-term logarithmic trend. And this time it really didn't. It went a bit above where it was in 2021, but not five times higher than it was or whatever. And so that gives me comfort that we don't need to have the same downside. We didn't have a completely crazy blow off top like we did in 2017 and 2021 and 2013 as well. In 2013, the market went up 10x in four months prior to the peak. So we didn't have one of those super crazy up moves. So I think somewhere around here is probably the bottom. I'm happy to admit it might be another six or eight months of grinding here because that's what it's done in the past.

8:26But my main advice to investors is definitely don't invest more than you're willing to lose in the amount you can hold for at least four or five years. And anyone that's held Bitcoin for four years has always made money. I think the minimum is doubling your money if you've held it for four years through the full cycle. And I have that same view here is if you can invest and you can hold it for four or five years, you will highly likely make money and potentially five times your money or 10 times your money. 66 ,000 or so today. I'm not a chart expert by any stretch of the imagination or technical expert, but I've seen a lot of people say that the sort of low 60s is quite an important support level.

9:08And if that was broken, you drop to the 25 ,000 level or something like that. Do you buy into that sort of analysis or not? Yeah, I don't understand the black art of technical. So I've never been an aficionado of that. And we really don't try and trade for very short term periods that, you know, we're trying to invest people's money in a kind of venture style, you know, 5, 10, 20 year view. And so it seems pretty cheap here.

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10:07My final question on the sort of move since October, I mean, clearly, there's been a risk off moment in markets that the NASDAQ, the S &P 500, you know, peaked around October as well. why do you think that bitcoin and crypto became the first source of liquidity amongst the basket of risk assets and options do you think that will always be the case is it just the case now what do you put it down to yeah it's a great question and i actually like the way you phrased it the first risk off if a huge event that shocks the market happens outside monday through friday 930 to 4 you can't trade stocks right you have to trade something else and the only two trillion dollars something else is crypto and so crypto is the only massive huge liquidity market that is open 24 7 and so i think it does bear probably a bit too much of the brunt of risk off um you know kind of hedging if you will when something like uh you know a geopolitical shock happens people want to take risk off.

11:15The only thing they do is sell a huge amount of Bitcoin or whatever. The thing to keep in mind is over very long periods of time, Bitcoin has a very low correlation with the S &P 500 or other risk assets. Historically, it was 0.1. I think it's crept up to about 0.2 now, but it's still very low. Most assets are 0.5, 0.6. And so, although it appears to be correlated because the day a geopolitical thing happens, Bitcoin does go down and the S &P goes down, So everyone goes, oh, they're correlated. But over any longer period of time, the correlation is pretty low. And the reason it is low is a result of what I said earlier, since almost nobody has a meaningful position in Bitcoin.

11:55When they have to take risk off, they don't have any Bitcoin or crypto to sell anyway. And so there's only these very short term flashes where crypto is highly correlated. But over long periods, it's not. And then the huge point is that, you know, volatility, sometimes there's a trend to it. And then over any multi-year period, crypto is typically way up. And other things kind of drift around and maybe down over five or 10-year periods. I want to touch on your view on gold and particularly gold last year before we get into the details of the debasement trade. But obviously gold was up 55%, obviously snapshotting this 12-month period.

12:32Arbitrarily, Bitcoin was essentially flat. Why do you think that was? Yeah, so gold's an interesting animal. relic, as it's been called, that, you know, comes into people's consciousness from time to time. And there are decades when people forget about it and don't really care. And so early in this trade, we were talking about maybe buying Bitcoin and selling gold, and we thought they'd be really connected. And they really kind of marched their own drummer. They both have the same theme, their fixed quantity thing that's not being debased by the printing of money. And so they have kind of the same concept to them.

13:10But people's appetite for them really goes in these kind of bursts of enthusiasm. And gold actually was languishing for a long time. Up until 2025, there were net outflows from gold ETFs for years. At the same time, there was, I think it's about 80 billion total inflows into Bitcoin ETFs, right? And so up until 2025, everyone was into digital gold and essentially getting out of old school gold. And I don't know why, but their consciousness of people got into the dollars being debased. We got to buy hard assets and bought gold big time in 2025. I think if I were betting, man, from here forward, Bitcoin will outperform physical gold because it's done so poorly over the last five months.

14:03Do you think, though, the debasement trade is the key theme behind both? I do. I do. And the way I think about it is not to talk about gold hitting record highs in price or real estate hitting record highs or equities hitting record highs. I really think the right way to say it is all those things are kind of not moving relative to each other. It's paper money hitting record lows. And as they print more and more paper money, the number of pieces of paper it takes to buy an ounce of gold or to buy a stock or to buy a piece of real estate or a Bitcoin has to go up. And even in this country, the pound sterling used to be exchangeable for a pound of sterling silver, right?

14:49And I haven't done this calc in a while, but I think it's over 300 now. It takes 300 pieces of paper sterling to buy a pound of sterling silver. And it's that simple. They used to be exchangeable, they used to be fixed, and they used to be identical. And now governments just print as much paper as they want. And so it takes a lot more pieces of paper to actually buy fixed quantity things. And obviously, silver's gone up a lot even since we last spoke in October. So it's made that trade even harder. I guess this is a kind of other point that jumps out when I've heard you talking about it. It's not just the US dollar or the British pound.

15:28I mean, it's most major currencies that this applies to. Yeah, I think that is the reality is that, you know, three quarters of the Earth's surface is covered by trees, you know, and so there's no stopping paper money printing, right? Like, there's just nothing that slows people down. and um the u.s the uk and actually former british colonies are one of the only countries that have never uh defaulted on their debt or debased by inflation uh and ken rogoff did a great book on this there's only 13 countries out of 240 or whatever that haven't debased half her british colonies. But even that, the US is debasing at 3 % a year.

16:18It's debasing at 8 % a year. Are we not debasing at the moment? Yeah. I think we are debasing at a rapid rate. The Fed now calls stable prices 2 % debasement, which is crazy. It should be zero, right? And so even at our current rate of debasement, your savings are debased by 90 % during your lifetime. It's incredible debasement. And that is what I think people are realizing is that you have to be in fixed quantity assets like stocks or real estate, physical gold or digital gold, other cryptocurrencies. And I do think another kind of part of the debasement trade is generational. Essentially, the younger generation is being priced out of housing by massive money printing, right?

17:07And so money printing is great for old people with stocks and real estate, right? Because it just inflates the value of their assets. But for young people, it's terrible. And so the age of first-time homebuyers in the United States went from the 20s, it was like 28 or so, to 40 now, right? And so there's a huge chunk of the population that really can't do what used to be the way to build wealth, is to invest in your home, have the real estate go up. And they're buying crypto. And actually, I think it's rational. I really think that is smart. I mean, the unaffordability of housing is a massive problem.

17:44In fact, if you chart from 1990, house price growth versus real wage growth, we're the worst, actually, in terms of that gap widening significantly.

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18:27Bring it on to the war. Clearly, it's inflationary, which has fed part of the debasement trade that we just talked about that helps the case for crypto. That said, it's also clearly quite a risk-off moment for markets. So how do you factor in, in the short term, what this war does for the case for crypto? I think you're right that it shows that inflation is probably persistent, you know, that 10-year interest rates in the U.S. have already risen 50 basis points in the space of a few weeks. And, you know, those cycles kind of get momentum and perpetuate themselves. So, you know, inflation is high and persistent.

19:12The other sub-theme, I think, that isn't much talked about, but I think is very important, is I think over the next decade, we're going to see separation of money and state. In the oldest days, money was independent of governments, right? It was gold. Gold was global and ubiquitous. And then princes and kings and government started printing money and everyone kind of got used to money being controlled by the state. But as we just mentioned, the states haven't done a great job. And they've printed a ton of pound sterling over the years. They've it's on US dollars and then most countries have the worst inflation rates and so I really see over it's going to take a decade not not immediately but people will realize you don't need the state to sponsor money and you could use money like Bitcoin or other cryptocurrencies and I think these geopolitical flashpoints probably highlighted even more that the world's kind of fracturing into groups, East, West, you know, U.S.

20:13aligned adversarial to the U.S. And I think there will be an increased demand for money that's not controlled by the U.S. Treasury Secretary. And if you think about it, China has a thousand years of their hard work saved in U.S. Treasuries. Like, that was pretty wild to put all their savings and something the Treasury Secretary can cancel. So I'm not going to say it's going to happen overnight. But when we look back 10 years from now, I think major countries, both that are aligned with the United States and ones that are adversarial, will each think they want to have currency that's outside the current financial and banking and sanctions regime.

20:54And Bitcoin's great at that. It's really interesting because, I mean, clearly gold has been a beneficiary of that from central bank buying. Maybe we'll come to whether central banks buy crypto and we talk about DATS in just a moment. But before we get to that, come back to that point you said, what level of ownership there is at the moment. We joked about this last time you were on. I'm probably a great example. Someone that talks about crypto a lot knows a fair amount about it now, but I'm not at zero. I'm at 0.001, mainly because if I have a tiny position, I track it better when it's real in my portfolio, but it's essentially zero.

21:34What level of ownership do you think there is for relatively sizable accounts across the country? Yeah, I think it's still pretty low. There's probably 300 or 400 million people globally that have some crypto. But like you said, a lot of people just have a fun amount rather than an amount that really makes them change their their actions and i think we really look at it it'll really be in you know it's basically cell phone based money and there are four billion people with a cell phone and i just think within a decade most of those people will use crypto um it's faster for sending money across borders it you know it doesn't cost a month's wages to migrants, you know, has all these incredible attributes and it's very easy to use.

22:29So I really see a world in the not too distant future where it's several billion people using it because it's just the easiest way to make payments to store your, and importantly, storing your wealth and stable coins, um, projects like Ondo that have treasuries on the blockchain. It's financial inclusion for anybody with a smartphone is so powerful. And those are the use cases that are coming that will bring hundreds of millions of people in the next couple of years and billions in the next five, but no more than 10 years. And obviously there's still a cost to carry during the mining process for now as well, but transactionally, I kind of get your point.

23:11I heard you say this on a podcast recently, which I thought was really interesting, which is this might be the first significant trade in history where the smart money, and we should be putting smart money perhaps in inverted commas, not just with this but with lots of things, where the smart money will arrive last. Has there been an example like this? Not that I can think of. I've been doing this 40 years, and all of the trades that I've seen before started out with the big Wall Street firms, the big money managers, big hedge funds in it first, and then essentially, quote, retail last. And this one really is still being led by individuals that got this trade.

23:51There's definitely been some institutions in early. We've had some partners since 2013 that have been really, really thoughtful. But most institutions aren't there. And there again, that's what makes me so bullish still. I was on a panel with the heads of massive firms, publicly held alternatives firms, almost all of them completely ignorant about Bitcoin and crypto. And that's why I'm bullish that, you know, those people are really smart. They run these massive businesses and someday they're going to have to buy it, you know? And so I view them as short, you know, that Bitcoin's now in the S &P 500 or crypto company Coinbase is in the S &P 500.

24:33So if you don't have any exposure to blockchain, you're short the index already. And I think over time, you know, cryptocurrencies themselves, more companies will join bigger indices. And you just have to have exposure to it.

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25:16Let's talk about the administration. One of the big positives that you mentioned when we last spoke was that you now have a government that's embracing it and trying to build it rather than crush it, which was certainly a significant moment. Do you pause and change your perspective on how big a positive tailwind that is based on what we're going to get clarity on coming forward in terms of this crucial question with stablecoins? They aren't meant to pay interest like banks do to depositors, but instead have paid rewards. And we'll know soon, I guess, whether that's going to be allowed to continue.

25:57Is this a key test for whether you still consider this current administration as a big tailwind? Well, the administration certainly is. The easiest way to say it is the previous administration was so aggressive in fighting what I would say is the inevitable, blockchain being an important part of our financial system. Previous administration was suing the best companies in our space, Coinbase and Ripple Labs, like you know uh very aggressive not allowing etfs all those things so the new administration is obviously great uh relative to that um one of the perspectives i always like to share is you know there's some grumbling that the second piece of congressional legislation has not been passed and the president has not yet signed it's amazing they've already passed one right like There's so many super crazy things happening in the world today.

26:52And the U.S. Congress is focusing on stablecoins. I'm in the crypto business. I think it's awesome. But frankly, it's pretty wild, right? And so we should be grateful for that. And they are working on a market structure bill, which again is also pretty amazing that they're talking about subtleties of market structure in the blockchain space when there's so many interesting things that they could be talking about. And your point about stablecoins is sometimes revolutions have to happen in steps. Obviously, stablecoins have to pay interest at some point. Obviously, it was the banking lobby that prevented it, just like Christian usury laws in the Middle Ages, right?